Exchange

rate
Group 4
Part 1 : Exchange
rate
Part 2 : Devaluation
exchange rate stories
Part 1 : Exchange rate
1 . Definition :
An exchange rate is simply the price of a unit of
currency used in one country or area expressed in the
money of another country or area.

2 . Quotation :
2.1 . Direct quotation :
This is also known as price quotation
Ex: USD/JPY = 134.56/61
USD/HKD = 7.7940/50
USD/VND= 21180/21230

2.2 . Indirect quotation :
This is also known as the quantity quotation.
Ex: EUR/USD = 0.8750/55
GBP/USD = 1.4143/50
AUD/USD = 0.5102/09

Kinds Direct quotation Indirect quotation
Base currency
(1 unit)
Foreign currency Domestic currency
Price currency
(n units)
Domestic currency Foreign currency
In reality Most of the countries except 4 countries use indirect
quotation
United Kingdom, Australia,
Eurozone and New Zealand
USA uses 2 ways.
+ Direct quotation: GBP, NZD, EUR, SDR, AUD
+ Indirect quotation: Other currency
2.3 . Quotation in InterBank :
The currency is listed with USD and it is no longer classified as domestic
currency / foreign currency but it is classified as base currency / price
currency.
Principles of quotation:
+USD is used as the price currency (P) with GBP, AUD, EUR, SDR, NZD
+USD is used as the base currency (B) with other currencies.
+Symbol: B/P
+Each exchange rates must include 5 digits.

Bid-ask rate: the preceded rate is the bid rate and the back
rate is the ask rate
Ex: USD/VND = 20.050 20.065
+Bid rate is the rate at which banks are willing to buy the
base currency.
+Ask rate is the rate at which banks are willing to sell base
currency

3 . Exchange rate policies :
Exchange rate policy is the government's activities
(whose representatives usually the central bank)
through a exchange rate regime (or mechanism of
operating rate) and a tool system to maintain a fixed
exchange rate or to affect the exchange rate to a
necessary extent which is appropriate to the
objectives of national economic policy.


3.1 . Exchange
rate regime
a. Free-floating
exchange rate
b. Fixed
exchange rate
c. Manged-
floating
exchange rate
3.2 . Exchange
rate
management
tools
a. Direct tools b. Indirect tools
4 . Factors that affect exchange rate :

Part 2 : Devaluation exchange
rate stories
1 . China
Reason for
Chinas
devaluation
exchange
rate
The entire
process of
devaluation
exchange
rate
Results
2 . Japan
The 3 Stages Of
Japanese Yen
Devaluation

First Stage:
Japan moves,
market doubts

Second Stage:
Market doubts,
Japan doesn't
move

Third Stage: US
rates rise, yen
goes into free fall

3 . Lesson for Vietnam :
Should we devaluate the
rate???